Trina Solar Limited (NYSE: TSL) has posted results of its second-quarter performance, showing a healthy increase in both module shipments and year-on-year net revenue..
Second Quarter 2011 Financial and Operating Highlights
"Amidst continuing demand environment challenges, we achieved record shipment volumes in the second quarter," said Mr. Jifan Gao, Chairman and CEO of Trina Solar. "Despite this increase, our sales were affected by end-market financing and high industry inventory due in part to recently-issued regulatory revisions and reduction of solar subsidies in Italy.
"In the third quarter, we expect a significant reduction in our manufacturing costs due in large part to recently completed renegotiation of the majority of our long term polysilicon feedstock and wafer agreements. We have seen substantial improvement in order pipeline from our distributors and large commercial and utility segment customers across Europe and North America. In addition to recently concluded agreements, we are also advancing discussions with new and existing customers to secure a growing number of sales agreements that extend through the second half of the year and early 2012.
"We are very encouraged by China's solar feed-in-tariff updates announced on August 1, which we believe reflect the improved economics and efficiency of solar energy. Since our recently announced agreements to supply two large-scale solar projects in Qinghai, we have seen increased opportunities to expand our domestic shipment allocations as the market expands.
"We remain focused on quality performance, product innovation and improved manufacturing efficiency, with the ultimate goal of improving total PV system performance, reliability and cost factors to further differentiate our product offerings. To support these goals, we recently announced our collaboration with Australia National University to develop high efficiency n-type monocrystalline solar cells with conversion efficiencies of 20%, and the launch of our innovative Trinamount mounting solutions to reduce overall system costs through systems-level innovation and product design.
"Lastly, we are excited to announce an improved warranty program that extends our product workmanship warranty from five to ten years and offers a 25-year linear performance warranty that positions Trina Solar's modules as one of the safest investments in the renewable energy marketplace."
Recent Business Highlights
During the second quarter of 2011, the Company:
Subsequent Events
Subsequent to the second quarter of 2011, the Company:
Second Quarter 2011 Results
Net Revenues
Net revenues in the second quarter of 2011 were $579.5 million, an increase of 5.2% sequentially and 56.3% year-over-year. Total shipments were 396.4 MW, compared to 320.4 MW in the first quarter of 2011 and 222.8 MW in the second quarter of 2010. The sequential increase in total shipments was primarily due to the Company's increased sales in Germany and the United States, which were supported by recent increases in manufacturing capacity.
Gross Profit and Margin
Gross profit in the second quarter of 2011 was $98.3 million, compared to $151.3 million in the first quarter of 2011 and $118.9 million in the second quarter of 2010.
Gross margin was 17.0% in the second quarter of 2011, compared to 27.5% in the first quarter of 2011 and 32.1% in the second quarter of 2010.
Gross margin relating to the Company's in-house wafer production to module production was 20.4% in the second quarter of 2011, compared to 32.1% in the first quarter of 2011. The sequential decline was primarily due to lower average module selling price.
Operating Expense, Income and Margin
Operating expenses in the second quarter of 2011 were $65.5 million, a decrease of 2.0% sequentially and an increase of 83.6% year-over-year. The Company's operating expenses represented 11.3% of its second quarter net revenues, a decrease from 12.1% in the first quarter of 2011 and an increase from 9.6% in the second quarter of 2010. The sequential percentage decrease was primarily due to a decrease in general and administrative expenses. The year-to-year percentage increase was primarily due to the continued expansion of the Company's global management structure to meet its strategic growth objectives and increased investment in research and development initiatives, partially offset by expense control measures implemented starting from 2010. Operating expenses in the second quarter of 2011 also included $2.3 million in share-based compensation expenses, compared to $1.6 million in the first quarter of 2011 and $1.7 million in the second quarter of 2010.
As a result of the foregoing, operating income in the second quarter of 2011 was $32.8 million, compared to $84.5 million in the first quarter of 2011 and $83.3 million in the second quarter of 2010. Operating margin was 5.7% in the second quarter of 2011, compared to 15.3% in the first quarter of 2011 and 22.5% in the second quarter of 2010.
Net Interest Expense
Net interest expense in the second quarter of 2011 was $7.2 million, compared to $6.7 million in the first quarter of 2011 and $8.2 million in the second quarter of 2010. The sequential increase in net interest expense was primarily due to a reduction in interest income in the second quarter of 2011.
Foreign Currency Exchange
The Company had a foreign currency exchange loss of $10.8 million in the second quarter of 2011, which was net of changes in fair value of derivative instruments, compared to a net loss of $24.1 million in the first quarter of 2011 and a net loss of $29.2 million in the second quarter of 2010. This net loss was primarily due to the loss from foreign currency forward contracts used by the Company to hedge its foreign currency risk exposure, which was partially offset by gains from the appreciation of the Euro against the U.S. dollar.
The Company continued to hedge for foreign exchange rate volatility during the second quarter of 2011 using forward contracts involving the Euro, Renminbi, and U.S. dollar currencies.
Income Tax
The Company's effective tax rate during the second quarter of 2011 period was 20.54%, compared to 20.54% in the first quarter of 2011 and 15.00% in the second quarter of 2010. The year-on-year increase is due to the fact that its major subsidiary, Changzhou Trina Solar Energy Co., Ltd., ("Changzhou Trina") in China is currently in the process of renewing its preferential tax rate from the local tax authority. In 2010, Changzhou Trina benefited from the preferential tax rate for High and New Technology Enterprises.
Net Income and EPS
Net income was $11.8 million in the second quarter of 2011, a decrease from $47.7 million in the first quarter of 2011 and $38.7 million in the second quarter of 2010. Net foreign currency exchange loss included in net income was $10.8 million in the second quarter of 2011, compared to $24.1 million in the first quarter of 2011 and $29.2 million in the second quarter of 2010.
Net margin was 2.0% in the second quarter of 2011, compared to 8.7% in the first quarter of 2011 and 10.4% in the second quarter of 2010.
Earnings per fully diluted ADS were $0.17 in the second quarter of 2011. The effects of the net second quarter foreign currency exchange net loss was approximately $0.15 per fully diluted ADS.
Financial Condition
As of June 30, 2011, the Company had $684.2 million in cash and cash equivalents and restricted cash and a working capital balance of $758.1 million. Total bank borrowings were $725.6 million, of which $382.6 million were long-term borrowings. The Company increased its short-term borrowings by $189.7 million to approximately $343.0 million as of June 30, 2011.
Shareholders' equity was $1.24 billion as of June 30, 2011, an increase from $1.22 billion at the end of the first quarter of 2011.
Third Quarter and Fiscal Year 2011 Guidance
For the third quarter of 2011, the Company expects to ship between 480 MW to 520 MW of PV modules.
The Company expects its gross margin relating to its in-house wafer production to module production to be in the high teens in percentage terms during the third quarter of 2011. The Company believes its overall gross margin, taking into account wafer and cell requirements outsourced to third party suppliers to meet demand in excess of its internal capacity, for the third quarter will be in the mid to high teens in percentage terms. Such guidance is based on an exchange rate between the Euro and U.S. dollar of approximately $1.40. For the full year 2011, the Company expects total PV module shipments to be between 1.75 GW to 1.8 GW, representing an increase of 65.6% to 70.3% from 2010.
Operations and Business Outlook
Non-Silicon Cost
In the second quarter of 2011, the Company's non-silicon manufacturing cost for its core raw materials to module production was approximately $0.73 per watt, unchanged from the previous quarter. By the end of 2011, the Company expects its non-silicon manufacturing cost to decline to below $0.70 through the continuation of technology and manufacturing process improvements involving proprietary processes for ingot, wafer, cell and module manufacturing, higher cell conversion efficiencies, and supply chain and logistics management initiatives currently under testing or development.
Silicon Procurement
Through its diversified range of short, medium, and long-term supply agreements, the Company will continue to maintain competitive silicon costs relative to the current market price.
As a result of renegotiation of a significant portion of its long-term silicon supply agreements, the Company expects a sequential reduction in its manufacturing costs in the third quarter of 2011.
2011 Capacity Expansion
As of July 31, 2011, the Company's annualized in-house ingot and wafer production capacity was approximately 1.0 GW and its PV cell and module production capacity was approximately 1.9 GW.
To meet expected demand for its PV solar modules, the Company expects to raise its annualized in-house ingot and wafer production capacity to approximately 1.2 GW in the second half of 2011, based on actual manufacturing yield.